Government by Confiscation

The NIH’s notice to unilaterally revise indirect cost rates on grants to 15% reads as though it were written by someone who barely understands what indirect costs are and how they are computed, which suggests it was imposed on them from without, as are many agency policies throughout the federal government. While it is unquestionable that the presidency sets policy throughout the executive branch, there is a reason why we rely on knowledgeable professionals in the civil service to advise on such policy. Moreover, the setting of policy cannot contravene federal laws, regulations, Congressional appropriation, case law, and most fundamentally, the obligation of contracts.

The notice in question relies on a specious, unprecedented reading of federal regulations (2 C.F.R. 200.414) that would give any agency the right to unilaterally ignore the federally-negotiated indirect cost rate agreement, which legally binds the federal government, and replace it with a de minimis rate, effectively defrauding institutions of reimbursement of real costs per the terms and conditions of existing contracts. The agency even claims that they would have the right to apply such a reduction retroactively to the beginning of an existing award, and reclaim indirect costs already paid in previous years. Quite apart from its illegality on multiple fronts, the mere pretense of having such a right is to claim to be beneath the most basic principles of honesty and integrity in abiding by one’s word, which a contract is supposed to formalize.

Such thorough dishonesty has long been a hallmark of Donald Trump’s business practices. Stiffing his contractors and subcontractors, even in violation of signed agreements, as a mere negotiating tactic to strong-arm weaker parties into accepting pennies on the dollar, is well-documented in Trump’s business career, via numerous legal disputes. A most thorough exposé of his amoral practices was given by his long-time fixer, Michael Cohen, in the book Disloyal. No one should be shocked by its contents, as it well accords with the public persona of Trump, which people excuse because they agree with him on one or another issue, thinking they are using him when they are the ones being used.

Having decades of experience in this domain, I am well positioned to appreciate how thoroughly ignorant Elon Musk and others in the Trump administration are in this matter, when they characterize indirect costs as some kind of surcharge by which universities rip off the federal government. In fact, indirect cost, which is to say the added cost of administration and facilities that is attributable to supporting research, is painstakingly audited every one to three years by the negotiating agency (DHHS or the Office of Naval Research). In fact, even the negotiated rate, often around 55%-65% of direct costs for universities (with certain excluded categories), and higher for hospitals, does not cover the full real cost of supporting federally-sponsored research. Large institutions cover the difference with internal funds. They can accept lower indirect rates from non-profit foundations (a small fraction of most research portfolios) only by cost-sharing with internal funds, so most institutions require investigators to provide such sources themselves. The actual indirect cost recovery rate ends up averaging 40% of directs or less, so a large institution may already be subsidizing federally-funded research on the order of $100M/yr or more.

A reduction to 15% would require a level of cost sharing that would be unbearable for many small to mid-size institutions, forcing them to refuse NIH funding. If the intent is to punish big universities, it will actually hurt small institutions more, but Trump has never truly cared about small businesses, as his own business practices prove. Elon suggests universities should use their endowments, proving he has no idea how endowments work. You can only spend the revenue, not the assets, or it’s not a true endowment. The revenue in most cases (2%-4% of assets depending on market) is already obligated to pay for the salaries of faculty beyond the NIH salary cap (reduced in 2012 and returned to that level only in 2022). Again, this “solution” would not help small institutions, but there is no evidence Musk cares about the consequences of his supposed “efficiency,” which should mean doing more with less, not less with less. Moreover, since 2008, NIH alone among federal agencies has refused to pay inflationary 3% increases, at first as a crisis measure, and now as a permanent fiction that inflation does not exist.

Indirect costs are so named because they cannot be directly attributed to a particular grant, but they are directly attributable to research operations as a whole. Federally-funded projects require added space, utilities and infrastructure, especially IT. They also require considerable administrative effort to maintain audit compliance for all transactions and reports. Ironically, NIH imposes more administrative burden on recipients than any other federal agency, yet they would illegally demand that this administrative work be uncompensated. It is already inadequately compensated. Since a cap of 26% of direct costs was imposed in 1991 on the administrative portion of indirect cost rates, real administrative burden has increased over the decades due to dozens of new regulatory changes, so the real cost of research administration is closer to 30%-35%. These are not mere secretaries or clerks. They are more like bookkeepers who must also have vast regulatory knowledge to ensure proposals, reports, and finances are all compliant. Grant administration is notoriously understaffed and overworked; draconian cuts will mean layoffs, worsening the problem possibly to the point of dysfunction. Small businesses actually tend to have higher negotiated rates, since they lack the efficiencies of scale that large universities have.

An intelligent examination of indirect cost rates might consider reducing the facilities portion and increasing the administration portion, since universities might be reasonably expected to shoulder more of their facilities costs, and the current model with capped administrative expenses may create perverse incentives to overbuild infrastructure (though this is speculative). NIH very recently recognized that recipients are undercompensated for administrative costs, by increasing the indirect cost base on subcontracts from $25,000 to $50,000. Its sudden new claim that universities are overcharging is a willful lie.

The 15% rate is based on no new analysis whatsoever; it was simply the lowest rate that they think they can legally get away with. This is naked confiscation, or more bluntly, theft. The felonious behavior of Donald Trump was not limited to his Stormy Daniels payments (which were exposed only because he initially stiffed his fixer Michael Cohen on his holiday bonus, necessitating later payments), for hundreds of small contractors have attested to his refusal to make legally obligated payments for no other reason than to apply leverage and force them to accept lower payment. Cohen correctly identified this as the tactics of a gangster.

The United States government enjoys what authority it has only insofar as it is grounded in the rule of law, for it makes no claims to an immanent right to rule, as did absolute monarchs. When a government willfully acts without any regard for the rule of law, not only in this but in many other matters, it loses its authority and right to command obedience. I have only spoken on the matter that happens to be within my expertise, and perhaps this will only be persuasive to those with similar knowledge. But I do not delude myself that he is acting incompetently only in my domain of knowledge; there is little reason to doubt that such infantile recklessness, matched with an uncritical and unmerited confidence in one’s own judgment, pervades all of his rash orders.

Many of these orders may be stopped by the courts, but a thief does not cease to be a thief simply because he is prevented on several occasions. The most serious concern is not how many illegalities will stand, but the fact that the chief enforcer of federal laws sees illegality as a fair means to any end, even going so far to condemn and discredit judges who rule against him. The dictatorship which seemed like a delusion when it was described only by those on the left is now already a practical reality, at least as far as the compliant Congressional majority is concerned. Even if they should change their position later, they may find there is no longer a state apparatus willing to implement their will.

How Vaccines Help the Immune System

Much of vaccine hesitancy is grounded in the supposition that one is better off relying on one’s “natural immunity.” This in turn supposes that there is some dichotomy or antithesis between “natural” and “artificial” immunization. In fact, vaccines operate by introducing an inert virus or protein into the bloodstream, so that the immune system can respond and learn to create antibodies. It is actually the immune system doing the “work” of immunization. The role of the vaccine is to introduce a harmless version of the pathogen, so that immunity can develop in this safe environment, and the immune system will be better prepared if the real thing comes. The alternatives would be to (1) hope that one is never exposed to the pathogen or (2) get exposed to the new pathogen and hope that the immune system can deal with it effectively on the first try. The choice is not between “artificial” or “natural” immunity, but between a prepared and unprepared immune system.

COVID-19 is now endemic, so it is a statistical near-certainty that everyone will be exposed to it at some point in their lives. Since it is a novel pathogen, our immune systems are not prepared for it with any specificity. For the unvaccinated, the risk of hospitalization and death varies greatly by age and existing health conditions. Even those who are not hospitalized, however, may suffer lasting “long COVID” effects. These include neurological disorders, respiratory damage, and increased risk of blood clots. Thus COVID-19 presents a substantial health risk to most unvaccinated adults.

You could say that you are willing to assume this substantial risk, or that, in your particular case (e.g., due to young age), the risk is objectively small. It makes no sense, however, to be sanguine about the risk associated with COVID exposure while at the same time being fearful of the risk associated with the vaccine, which does nothing but introduce an inert spike protein into the bloodstream, albeit indirectly. It makes no sense to be fearful of the inert spike protein while having no fear of exposure to the real thing. In fact, all the side effects of vaccines, including the serious effect of blood clotting, are effects associated with COVID-19. This only makes sense, because the inactive ingredients of the vaccine are harmless in their minute quantities, so whatever side effects result would be from the spike protein and the immune response to the same.

The mRNA vaccines (Pfizer and Moderna) work by introducing mRNA into muscle cells, instructing the body to create the spike protein. The mRNA itself, being quite fragile, disintegrates within a few days. The spike protein can remain for a few weeks, as the immune system takes time to develop a response. The Johnson & Johnson (Janssen) vaccine uses a piece of virus DNA (incapable of replicating) with instructions to create the spike protein. This adenovirus method has been in use since the 1970s. The mRNA method, though newly implemented, has been studied for decades. It has not been used previously not because it is unsafe (the mRNA does nothing but code for the inert protein), but because there has been no practical need. The difficulty and cost of storing mRNA is offset by the need to produce vaccines in unprecedented large quantities in a short time.

The COVID vaccines are different from most vaccines only in that they introduce the protein indirectly by genetic instructions, though even this is not truly novel, since DNA has long been used in adenovirus vaccines. Most vaccines operate by introducing the inert pathogen directly. They are not “medicines” or “artificial chemicals,” but pseudo-pathogens introduced to stimulate the immune system to prepare a defense. This is why the side effects of all vaccines are generally similar to the symptoms of the disease to be prevented.

The only lasting products of the COVID vaccines are the antibodies produced by the immune system. The mRNA/DNA disintegrates in days, and the spike protein is gone in a few weeks. These are all “natural” substances that operate according to well-understood biochemistry that regularly occurs in the body.

There is some evidence from Israel suggesting that the immunity (measured in antibody levels) resulting from exposure to COVID in the unvaccinated is greater than that provided by vaccination. Even if this is true, it is not a worthy comparison, for this ignores the substantial health risk involved in being exposed to COVID while unvaccinated. The greater immunity achieved is only subsequent to going through COVID, and it is not possible to know in advance if one will get a severe case or long-term symptoms. It would not be surprising if exposure to the real thing indeed provides better immunity than exposure to a pseudo-pathogen, but this is achieved only after a failure to prevent the disease. The same Israeli study notes that immunity is further enhanced by vaccination following exposure. This finding shows that “natural” and “vaccine” immunity are not antithetical, but complementary.

Early claims about the efficacy of the mRNA vaccines proved to have been overstated, at least with regard to preventing infection. Some of this has to do with the more infectious delta variant, and some has to do with the degradation of immunity levels over time, becoming substantial at six months. A regimen of once or twice annual boosters seems likely. Nonetheless, the vaccines do remain highly effective at reducing severe cases and the long-term health effects associated with these. It would obviously be more prudent to obtain this immunity before one enters the high-risk age group.

In short, without getting into the propriety of legal mandates and the rights of the individual versus those of society, we can see a unilateral prudential benefit to vaccination, at least for adults. All of the risks associated with vaccines are objectively small, and even if they were not, they are necessarily no worse than the risk assumed by not being vaccinated, once it is understood that COVID is endemic and that the vaccines operate solely by introducing inert pathogens, letting the immune system do the work of developing a defense.

By now, practically all of us know someone who has had COVID, perhaps including an unvaccinated person with a severe case and an elderly vaccinated person with a mild case. Some of us may have noted how immunity to infections drops after six months, and those with boosters fare better when exposed in large unmasked gatherings. We cannot reasonably pretend that the health risk is negligible, nor that outcomes are not materially affected by vaccination. Hopefully, a demystified understanding of the quite ordinary processes by which vaccines operate will help remove hesitancy in more people.

Methodological Problems in Epidemiology

As much of the world looks to slowly ramp down COVID-19 isolation measures, it remains unclear whether this global social experiment should be considered wise or foolish. The prevalence of infections is < 1% in every country in the world except the microstate San Marino. This is better than projected by most models, and could be interpreted as a success for isolation, an overestimation of the virus's infectiousness, or a natural seasonal effect. This question is not resolvable insofar as it depends on the counterfactual of what would have happened if isolation was not imposed. As mentioned in the last post, spread to 60% of the population with millions of deaths was never realistic. That alarmist scenario relied on a naive application of epidemiological models that have poor predictive ability. Using an SEIR model with the estimated parameters for COVID-19, one indeed gets a grim picture. Yet if one were to insert the parameters for seasonal influenza (R0 = 1.3, avg. incubation period = 2 days, avg. duration of infectiousness = 5 days, mortality rate = 0.1%) into the same model, you would have over 40% infected and 150,000 fatalities in the first year, far more than what occurs in reality. The reproduction rate of a disease depends not only on the duration of contagiousness, but also the likelihood of infection per contact (secondary attack rate) and contact rate. These last two are highly variable by region, social structure, and perhaps even individual physical susceptibility.

Conventional compartmentalized models have poor predictive ability for seasonal influenza, as they do not account for other factors besides herd immunity and isolation that could slow the spread of disease. A Los Alamos study was able to create a model with parameters that fit to past seasonal data and should hopefully have predictive power for future seasons. Such an approach, however, is useless for novel pandemics. As the authors note, these models are all highly sensitive to choice of prior parameters, but we cannot know these until after the epidemic has run its course.

The problem of predictive modeling is exacerbated by the poor quality of public health data, which is often woefully incomplete or inconsistent, with categorizations often driven by policies or other unscientific criteria. Public health systems do a better job of recording the number of infected than they do for those exposed or recovered. Even here they are limited to those who seek medical treatment, and often diagnoses are made by symptoms rather than definitive tests. Cause of death on death certificates is driven by bureaucratically imposed standards. Even in scientific studies, researchers classify subjects according to one or another cause of death, and treat comorbidities as risk factors increasing the chance of death by the primary cause. It would be more rigorous to acknowledge that there is not always a single cause of death, and instead to treat comorbidities as contributing causes by factor analysis. This would let us know the mortality contribution of each disease to the population, but it would remain generally impossible to give a single “cause of death” for each individual.

Some parameters of COVID-19 are fairly well known at this point. The infected are contagious from 48 hours before showing symptoms to 3 days afterward. The secondary attack rate is surprisingly low, only 0.45% (compared to 5%-15% for seasonal flu). Thus the relatively high R0 is attributable not so much to high contagiousness, but to the longer duration of contagiousness, especially while presymptomatic, so that infected people have more contacts while contagious than seasonal flu victims would. The 2009-10 H1N1 pandemic, by contrast, had a secondary attack rate of 14.5%, yet it infected 61 million out of 307 million in the US, just under 20%. It is implausible that COVID-19, with its much lower attack rate, could ever attain a comparable prevalence level.

Why, then, are the death statistics so much higher than would be suggested by the low infectiousness and low prevalence? On the one hand, many jurisdictions, notably New York, have decided to include so-called “probable” COVID-19 related deaths, and most public health data includes no serious attempt to account for comorbidities as causal factors, though they occur in well over 90% of fatal cases. On the other hand, the increase in deaths versus last year in many areas greatly exceeds even this high count, so it could be argued we are undercounting COVID-19 fatalities. The problem here is that many of the excess deaths could be caused not by COVID-19 per se, but by the overloading of medical facilities, resulting in less than immediate critical care. Some of these excess deaths might even be caused by the quarantine measures, as diagnostic and non-emergency medical visits have been cancelled.

It would not be uncommon for the number of deaths to be revised upward or downward by a large factor retrospectively. A year after the H1N1 pandemic, a study suggested that the deaths attributed to H1N1 ought to be revised 15 times higher. Whether H1N1 deaths were undercounted or COVID-19 deaths are overcounted remains to be seen, and is unlikely to be resolved, given the problems of data and methodology we have touched upon.

The truly frightening thing is that major public health policy decisions are made on woefully inadequate data and modeling, which will likely be radically revised after each pandemic passes, and the moment for decision-making is past. Public health officials will always err on the side of caution, but as we have noted in the previous post, this is not practicable for an indefinite period of time. At some point we must be willing to poke our heads out of our caves and assume the risk of living.

After all, as recently as the early twentieth century, people went about their business even while living under the threats of smallpox, polio, and measles, any one of which had higher infectiousness and fatality rates than the current pandemic. By objective criteria, there is nothing exceptional about COVID-19 as an infectious disease. What is exceptional is the post-WWII belief that life should be free from deadly risk, enabled by technological means to perform many service economy jobs remotely.